American brokerage Bank of America-Merrill Lynch (BofA-ML) Saturday said the "deflation" on the wholesale price index is likely to continue till October.
"We see wholesale price deflation persisting for another four months till October if the dated Brent ends 2015-16 at USD 62 a barrel," BofA-ML said in a research note.
The Wholesale Price Index based inflation was at negative 2.4 percent in June, which was the eighth consecutive month of decline.
While CPI inflation will indubitably remain the official inflation target, it expected the RBI to absorb the key message of weakening imported inflation in its monetary policy formulation going forward.
"After all, imported inflation is likely to remain in check with commodity prices reined in by the concerns about the US Fed tightening, the Greek crisis and Chinese slowdown and also due to stability in the rupee with the RBI recouping foreign exchange reserves," it said.
The note said RBI Governor Raghuram Rajan is likely to cut repo rate by 50 basis points in early 2016, with CPI inflation well on track to be under RBI's comfort zone of under 6 percent in January 2016.
"If the monsoon rains rotate back next week, the RBI could also cut (rate) on August 4 if the Fed is none-too- hawkish on July 29," the brokerage said. Retail inflation as measured by consumer price index accelerated to an eight-month high of 5.4 percent in June from 5.01 percent in May. It was 6.77 percent in June 2014.
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